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Lease Commitments

6 Months Ended

Jun. 30, 2025

The Company leases office buildings, vehicles, energy storage facilities, and other equipment. In addition, certain rights-of-way agreements are classified as leases. All of the Company’s leases with terms in excess of one year are recorded on the balance sheet by recording a present value lease liability and a corresponding right-of-use asset. Operating lease expense is recognized within operating expenses according to the use of the asset on a straight-line basis. Financing lease costs, which are comprised primarily of fleet and office equipment leases commencing after January 1, 2019, are recognized by amortizing the right-of-use asset on a straight-line basis and by recording interest expense on the lease liability. Financing lease right-of-use assets amortization is reflected in depreciation and amortization and interest on financing lease liabilities is reflected as interest charges on the Company’s Condensed Consolidated Statements of Earnings. See additional discussion of the Company’s leasing activities in Note 8 of the Notes to Consolidated Financial Statements in the 2024 Annual Reports on Form 10-K.

PVNGS

In 1985 and 1986, PNM entered into leases for its interest in PVNGS Unit 1 and 2. The leases initially were scheduled to expire in January 2015 for four Unit 1 leases and January 2016 for four Unit 2 leases. Following procedures set forth in the PVNGS leases, PNM notified four of the lessors under the Unit 1 leases and one lessor under the Unit 2 lease that it would elect to renew those leases on the expiration date of the original leases. The four Unit 1 leases expired in January 2023 and the one Unit 2 lease expired in January 2024. PNM has no further lease payments related to PVNGS Unit 1 or 2.

On April 5, 2021, PNM and Salt River Project entered into an Asset Purchase and Sale Agreement, pursuant to which PNM agreed to sell to Salt River Project certain PNM-owned assets and nuclear fuel necessary to the ongoing operation and maintenance of leased capacity in PVNGS Unit 1 and Unit 2. In January 2023, the Unit 1 leases expired, and PNM closed on the associated sale to Salt River Project. In January 2024, the Unit 2 leases expired, and PNM closed on the associated sale to Salt River Project, receiving payments totaling $3.4 million, of which $2.8 million was recorded as a reduction to Net utility plant on the Condensed Consolidated Balance Sheets and was presented as cash flows from investing activities on the Condensed Consolidated Statement of Cash Flows. In addition, $0.6 million was recorded as a reduction to Materials, supplies and fuel stock on the Condensed Consolidated Balance Sheets and was presented as cash flows from operating activities on the Condensed Consolidated Statement of Cash Flows.

Land Easements and Rights-of-Way

Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. PNM’s April 2025 payment for the amount due under the Navajo Nation right-of-way lease was $8.8 million, which included amounts due under the Consumer Price Index adjustment. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.

PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of June 30, 2025 and December 31, 2024, the unamortized balance of these rights-of-ways was $61.3 million and $67.1 million. PNM recognized amortization expense associated with these agreements of $1.2 million and $2.2 million in the three and six months ended June 30, 2025 and $1.0 million and $2.1 million in the three and six months ended June 30, 2024.

Fleet Vehicles and Equipment

Fleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. Fleet vehicle and equipment leases existing as of December 31, 2018 are classified as operating leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. At June 30, 2025, residual value guarantees on fleet vehicle and equipment leases are $0.7 million, $0.7 million, and $1.4 million for PNM, TNMP, and TXNM Consolidated.

Energy Storage Agreements

The Company has ESAs with fixed payments over the life of the agreements, that are accounted for as operating leases, for which Company records the initial lease liabilities and corresponding right-of-use assets. The Company also has ESAs with monthly payments that vary, depending on the available capacity of the energy storage facility, that are also accounted for as operating leases. However, due to the variable nature of the consideration, these agreements do not require a lease liability or a right-of-use asset to be recorded upon inception. Expenses for this type of lease are reflected in variable lease expense in the tables below. In addition, the Company has elected to separate lease components from non-lease components for ESAs and accordingly, does not include non-lease components in the measurement of the lease liability or right-of-use asset. The non-lease components, which are not included in the measurement of the lease liability or the corresponding right-of-use asset, comprise 25.5% of the value of the agreements.

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets is presented below:


	June 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating leases:
Operating lease assets, net of amortization	$	265,016	$	388	$	265,919	$	271,433	$	923	$	272,894
Current portion of operating lease liabilities	13,253		348		13,640		13,542		713		14,293
Long-term portion of operating lease liabilities	245,330		31		245,847		254,702		167		255,376

As discussed above, the Company classifies its fleet vehicle and equipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases. Information related to the Company’s financing leases recorded on the Condensed Consolidated Balance Sheets is presented below:


	June 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Financing leases:
Non-utility property	$	25,717	$	27,843	$	54,912	$	24,548	$	24,420	$	50,144
Accumulated depreciation	(11,814)		(13,825)		(25,989)		(10,997)		(13,411)		(24,604)
Non-utility property, net	13,903		14,018		28,923		13,551		11,009		25,540

Other current liabilities	$	4,685	$	5,270	$	10,284	$	4,311	$	4,527	$	9,126
Other deferred credits	9,242		8,776		18,716		9,262		6,504		16,470

Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities is presented below:


	June 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
Weighted average remaining lease term (years):
Operating leases	17.30		0.67		17.26		17.52		1.10		17.45
Financing leases	3.31		3.16		3.23		3.51		2.80		3.20

Weighted average discount rate:
Operating leases	5.70	%	4.46	%	5.70	%	5.68	%	4.41	%	5.68	%
Financing leases	5.26	%	5.43	%	5.33	%	5.08	%	5.19	%	5.12	%

Information for the components of lease expense is as follows:


	Three Months Ended June 30, 2025						Six Months Ended June 30, 2025
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating lease cost:
Energy storage leases	$	5,084	$	—	$	5,084	$	10,167	$	—	$	10,167
Other operating leases	1,863		131		2,012		3,726		285		4,048
Amounts capitalized	(11)		(106)		(117)		(22)		(236)		(258)
Total operating lease expense	6,936		25		6,979		13,871		49		13,957
Financing lease cost:
Amortization of right-of-use assets	1,230		1,549		2,864		2,431		2,843		5,452
Interest on lease liabilities	184		213		411		364		357		750
Amounts capitalized	(898)		(1,455)		(2,354)		(1,778)		(2,650)		(4,428)
Total financing lease expense	516		307		921		1,017		550		1,774

Variable lease expense	6,579		—		6,579		13,135		—		13,135
Short-term lease expense	178		8		198		369		12		423
Total lease expense for the period	$	14,209	$	340	$	14,677	$	28,392	$	611	$	29,289


	Three Months Ended June 30, 2024						Six Months Ended June 30, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating lease cost:
Energy storage leases	$	2,947	$	—	$	2,947	$	5,893	$	—	$	5,893
Other operating leases	1,908		237		2,157		3,967		507		4,486
Amounts capitalized	(28)		(209)		(237)		(63)		(442)		(505)
Total operating lease expense	4,827		28		4,867		9,797		65		9,874
Financing lease cost:
Amortization of right-of-use assets	1,120		1,315		2,463		2,337		2,631		5,005
Interest on lease liabilities	143		147		294		287		299		591
Amounts capitalized	(756)		(1,161)		(1,917)		(1,597)		(2,343)		(3,940)
Total financing lease expense	507		301		840		1,027		587		1,656

Variable lease expense	433		—		433		793		—		793
Short-term lease expense	148		7		165		352		12		381
Total lease expense for the period	$	5,915	$	336	$	6,305	$	11,969	$	664	$	12,704

Supplemental cash flow information related to the Company’s leases is as follows:


	Six Months Ended						Six Months Ended
	June 30, 2025						June 30, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,114	$	27	$	17,173	$	13,701	$	26	$	13,737
Operating cash flows from financing leases	131		97		256		94		53		152
Finance cash flows from financing leases	884		447		1,499		919		533		1,487

Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	49	$	9	$	58	$	27	$	69	$	663
Financing leases	2,789		5,855		8,848		831		1,736		2,885

Capitalized lease costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024. Future expected lease payments are shown below:


	As of June 30, 2025
	PNM						TNMP				TXNM
			Operating										Operating
	Financing		Energy Storage		Other		Financing		Operating		Financing		Energy Storage		Other
	(In thousands)
Remainder of 2025	$	2,748	$	10,167	$	135	$	3,184	$	346	$	6,117	$	10,167	$	514
2026	5,045		20,333		7,045		5,122		16		10,537		20,333		7,130
2027	3,727		20,333		7,049		3,561		14		7,637		20,333		7,134
2028	2,307		20,333		7,052		2,090		11		4,564		20,333		7,135
2029	876		20,333		7,039		1,125		—		2,035		20,333		7,114
Later years	277		287,100		3,660		180		—		456		287,100		4,012
Total minimum lease payments	14,980		378,599		31,980		15,262		387		31,346		378,599		33,039
Less: Imputed interest	1,053		148,145		3,851		1,216		8		2,346		148,145		4,006
Lease liabilities	$	13,927	$	230,454	$	28,129	$	14,046	$	379	$	29,000	$	230,454	$	29,033

The above table includes $12.9 million, $12.2 million, and $25.2 million for PNM, TNMP, and TXNM at June 30, 2025 for expected future payments on fleet vehicle and equipment leases that could be avoided if the leased assets were returned and the lessor is able to recover estimated market value for the equipment from third parties.

At June 30, 2025, the Company has various lease arrangements that have been executed but have not yet commenced, which are primarily related to ESAs. The Company currently expects that certain leases with commencement dates in 2025 and 2029, that have lease terms expiring in 2045 and 2044, will be recognized as lease assets and liabilities upon the lease commencement. The expected total fixed consideration to be paid for these arrangements, which includes non-lease payments, is approximately $226.3 million over the 20-year terms of the agreements.

Lease Commitments